Commentary

Banks still have trouble getting paperwork right

Commentary: Foreclosures, loan modifications remain chaotic

By

AlLewis

Columnist

DENVER (MarketWatch) — America’s mortgage foreclosure crisis is at least five years old, and two of the nation’s largest banks apparently still can’t handle all the paperwork.

New York Attorney General Eric Schneiderman on Monday threatened to sue Wells Fargo & Co.
WFC, -0.26%
and Bank of America Corp.
BAC, +0.61%
for violating terms of the national mortgage settlement reached last year with the nation’s five largest mortgage banks.

Under the settlement, these banks are supposed to keep their paperwork straight. Schneiderman claims they haven’t.

Perhaps they’ve still got quite a mess on their hands and are doing the best they can.

Bank of America put out a statement saying it’s taking Schneiderman’s complaint “seriously, and will work quickly to address” his concerns. And Wells Fargo said it “is committed to full compliance.”

“It is unfortunate that [Schneiderman] has chosen this route rather than engage in a constructive dialogue,” Wells Fargo added in its statement.

Reuters

The big banks are still having a hard time keeping the paperwork straight on loan modifications and foreclosures.

Both banks, with encouragement from the federal government, purchased reckless mortgage lending companies in 2008, just as the real estate market collapsed. Bank of America acquired Countrywide Financial. Wells Fargo acquired Wachovia. Were it not for federal bailouts, neither bank would have survived these transactions. They would have ended up like many homeowners who bought at the top of the market.

Countrywide and Wachovia were geared to make as many loans as possible to anyone with a pulse. They were not geared to handle the paperwork from the millions of defaults, foreclosures and loan modification requests that inevitably ensued from their shoddy lending practices.

This was an industrywide problem in an endeavor driven by sales and commissions. When the boom ended, mortgage lenders, in many cases, didn’t even have the proper paperwork to foreclose on homes. So they went to courts across the land with documents that were “robo-signed.” They’d hire professional document signers to stick signatures on thousands of documents at a time, attesting to things they knew nothing about.

CEO Brady Dougan discusses bankers'pay

If an ordinary citizen went to court with documents like these, a judge might consider granting them a new residence with some nice bars over the windows. But bankers were able to cut a deal known as the national mortgage settlement.

Ally Financial, JP Morgan Chase
JPM, +0.43%
Citibank
C, -0.18%
Bank of America and Wells Fargo put up $25 billion to reach the settlement, and they agreed to get their paperwork straight. In addition to screwing up foreclosure paperwork, they’d also bungled paperwork associated with loan modifications.

In some cases, distressed borrowers were working with a bank on loan modifications, and instead of a new loan, they’d end up with a foreclosure notice. As part of the settlement, banks agreed not to foreclose on people while working with them on loan modifications. But, you know. That’s a heck of lot of paper to keep organized.

Schneiderman said he’s documented 339 violations of the agreement at Wells Fargo and Bank of America. One of them is the case of Joyce and Alton Harden who have lived in their home in the Rockaways, N.Y., for 35 years.

The Hardens have been working on a loan modification with Wells Fargo for three years. Harden was out of work for several months after an on-the-job injury, and then came Hurricane Sandy, barreling down on their home. The loan modification process resulted in both frustration and a foreclosure notice, said their attorney Linda Jun of MFY Legal Services in New York.

At one point, Wells Fargo offered a loan mod that lowered their payment by less than $100 a month, Jun said. In March, she helped them file a new loan modification request.

As part of the settlement Wells Fargo is required to acknowledge such requests within 30 days. It didn’t, according to Schneiderman. Instead, Jun received a request from the bank last week to resubmit the application and start the process all over again.

If bankers are going to lose track of things, maybe they shouldn’t run a bank. They should run a bar. Then they can at least blame it on the alcohol. The Hardens now have no idea whether they’ll be able to stay in their home as they near their 70s.

Wells Fargo spokeswoman Vickee Adams told me privacy concerns prevented her from talking specifically about the Harden’s case. Generally, however, the bank does everything it can to keep foreclosures from happening, particularly amid disasters such as Hurricane Sandy, she said.

Jun, however, says the glitches borrowers have suffered from big banks are far from fixed, even after the banks have had five years since the foreclosure crisis to get it right.

“The Hardens are not my only clients who’ve gone through the hamster wheel of documents,” Jun said. “It’s a very frustrating process that lots of homeowners are going through, and the banks are still doing it.”

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